New Findings on Business Relocation

The debate over the importance of firms moving out of California is as chronic as the issue is complex. The findings of a new interim report released by the Public Policy Institute of California (PPIC) reinforce earlier work by the institute showing that business relocation has a negligible effect on employment in California. However, in examining certain critical questions raised by the previous analysis, the study identifies a number of subtexts and delivers a richer understanding of business relocation in California.

In particular, the authors go beyond aggregate numbers and look at specific industries to determine if some are more affected by business relocation. They find, in fact, that certain industries such as manufacturing, information, and finance and insurance are more mobile and relocation is more frequent. However, this holds true in both directions – meaning that businesses in these sectors move into and out of California more often. The authors find, in fact, that the net effect on job loss and gain due to relocation remains small across all major industries. For example, the annual job loss rate from relocation in finance and insurance – the industry with the largest effect – was one-quarter of 1 percent annually between 1992 and 2003.

The authors also find, as some have suggested, that the jobs California loses due to relocation are concentrated in higher-paying industries. They find that between 1992 and 2003, over half the state’s job loss from relocation was within the highest-paying one-third of industries. However, these higher-paying sectors are also the ones that are more mobile, meaning that higher-paying industries are also much more likely to move into California. Taking all of this into account, the net effect of relocation on the state’s overall employment and aggregate earnings is relatively small.

Beyond these more narrow issues, can greater relocation be a sign of an industry’s failing health? The report looks at this critical question and finds no relation between migration and job growth. “Focusing on relocation tells us very little about the overall economic health of any one sector,” says PPIC Research Fellow Jed Kolko, who co-authored the study with PPIC Senior Fellow David Neumark and PPIC Research Fellow Junfu Zhang. “Relocation is a very small part of employment dynamics in every industry; business births and expansions should be the focus when thinking about job growth policy.”

The report, Interstate Business Relocation: An Industry-Level Analysis, is available on PPIC’s website at www.ppic.org. This interim report is part of an ongoing project on job creation and destruction and was supported in part by David A. Coulter.

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The Public Policy Institute of California is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.